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10 things to know about Insurance in Uganda

"Insurance Law "

Uganda

Contributed by Rebecca Nakiranda

Shonubi, Musoke and Co Advocates

The regulator

The insurance industry is regulated by the Insurance Regulatory Authority of Uganda (IRAU) which is established under the Insurance Act of 2017.

All insurers (both life and non-life insurers), insurance intermediaries (such as brokers, agents, risk advisors, loss assessors, bancassurance agents, third party administrators and reinsurance brokers) must hold a valid licence issued by IRAU which is renewable on an annual basis.

To obtain a licence, the insurer, re-insurer and broker must be a company incorporated under local laws. For a bancassurance agent to obtain a licence, it must be a financial institution duly licensed by the Central Bank to conduct financial institution business.

Other than brokers, incorporation of a local company is not a mandatory requirement for other insurance intermediaries

Subsidiary/branch

Conducting general and life insurance business as a composite business is prohibited.

A foreigner who wishes to carry on insurance business in Uganda is required to incorporate a local company under the laws of Uganda and then to apply to IRAU for a licence to conduct insurance business before applying for a trading licence from the local authorities.

A foreign insurer may be exempted by the IRAU from the requirement of being incorporated locally for the purpose of providing insurance.

FDI restrictions

There is no prohibition on foreign direct investment in terms of acquisition of shares in an insurance company. However, acquisition of the insurance business by any insurance company or any part thereof requires prior approval of the IRAU.

Change of control approvals

It is mandatory to obtain the written approval of the IRAU before changing control of an insurance entity by way of share transfer, or the removal or appointment of directors. Directors and significant shareholders must be fit and proper.

Any alteration or modification in the memorandum or articles of association is subject to prior approval of IRAU.

Minimum capital

The prescribed minimum paid up capital requirements is as below

Risk based capital insurers

Life insurers are required to ensure that their liabilities do not exceed the amount of their life insurance fund.

For non-life insurers or reinsurers, the admitted assets must exceed the sum prescribed by IRAU or a minimum of 15 per cent of the premium income net of the reinsurance sessions.

Micro insurance organisations must maintain a solvency margin of the highest of either 15 per cent of the net written premium or Ushs50 million.

All insurers are required to establish and maintain an insurance fund with reserves for unearned premium, outstanding claims and reserves to cover fluctuations in securities and variations in statistical estimates.

Policyholder protection

All insurers are required to maintain insurance funds which represent the liabilities of all the policies of the particular businesses written, for security of policyholders. There exists a policyholders’ compensation fund that is used to compensate the policyholders of an insolvent insurer. The fund is managed by a board of trustees appointed by Minister responsible for Finance. The policyholders’ compensation fund is funded by premium levied upon the insurers, loans obtained by the government, grants, gifts and donations or any other source approved by the Minister in charge of Finance.

Outsourcing of underwriting and other material functions

The law is flexible and does not restrict outsourcing insurance functions such as underwriting, claims handling and other functions. However with regard to the auditing function, prior approval of the auditor by IRAU is a mandatory requirement.

Regulation of the provision of intermediary services

Providers of intermediary insurance services are subject to the approval and due licensing by IRAU. The following are recognised as insurance intermediaries: insurance agents; insurance brokers; risk advisors; loss assessors; third party administrators; and reinsurance brokers. The law restricts intermediary service providers to deal with only licensed insurance companies. Intermediary services may be conducted by body corporates or individuals. However, as regards brokerage services (which is also an intermediary service), no person other than a company incorporated in Uganda is permitted to carry on a business of an insurance broker. An insurance agent is prohibited from acting for two or more insurers transacting the same class of business.

Are there any statutory and compulsory insurance products that have to be underwritten?

No insurance products have been prescribed for compulsory underwriting. There are insurance products created by statute such as, worker’s compensation products and motor vehicle (third party risk) insurance.